5 Details to Know About the California Prompt Payment Act

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California Prompt Payment Act

A big state with a huge economy and complex laws, the laws relevant to the California Prompt Payment Act are found in numerous places throughout its legal code. From the Business and Professions Code to the Civil Code, they govern different types of projects in different ways. While this can be a complex maze for businesses looking to work and grow in California, with a little study or the help of a construction attorney, you can ensure you’re following the complex web of laws correctly. Here are just five of the many details you might need to know about 

In the construction business, payments never come in as quickly as we hope.  This has been an issue in the field since the very beginning, but prompt payment laws, varying in their scope and application, exist across the country. California’s prompt payment act (CPPA) will be discussed in this article, but others exist in every state in the country.  Make sure to see if one applies to your project.

IMPLICATIONS OF THE CALIFORNIA PROMPT PAYMENT ACT

If California were a country, it would be the 5th largest economy in the world.  The size and scope of California are simply massive, especially when it comes to the laws and regulations that impact every resident and worker in the state.  California has promulgated legislation to assist people in being paid on time for work performed, the California Prompt Payment Act.  This law impacts a large number of contracts in the state and finds references in everything from the Business & Professions Code to the California Civil Code.  This article does not have the time to discuss the Act in detail, but only to illustrate five key takeaways.

DISPUTE RULES FOR PRIVATE PROJECTS

Normally, an owner is directly responsible for paying the contractor. Under normal circumstances, on private projects, the owner must pay the contractor within 30 days of the demand.  This rule only applies when there is no dispute and if the parties have not agreed to a different timeframe.

When a dispute regarding the amount due or the services rendered arises, the owner can refuse up to 150% of the disputed amount of payment to that contractor, at least until the dispute is resolved.  But be careful.  Trying to use these rules in bad faith can incur a 2% per month penalty, and once the disputed work is finished, the owner must pay the contractor within 10 days.

While this rule only applies to the relationship between an owner and a general contractor, similar rules apply for the general contractor / subcontractor relationship.  However, when we move to this level, the general contractor must pay (or dispute) the subcontractor within 7 days of receiving an invoice.

PUBLIC PROJECTS HAVE DIFFERENT RULES

The rules for public projects mirror those for private projects, but different specifics and procedures are required.  In fact, the rules change based on the kind of public entity making the contract.  The California State University system requires payment within 39-days of an undisputed invoice.  Here, if the public body involved in the contract has reason to dispute the work, they only have a seven-day window to reject a demand letter submitted by a direct contractor.

THE CPPA’s WAIVER RULES

California allows parties to waive the strict deadlines imposed by the CPPA in some instances, but not in others.  A standard private project, such as a residence, would allow for the parties to waive or change the deadlines as they see fit. However, more specific legislation relating to state university projects are silent regarding any alterations to the deadlines, so the question of whether these CPPA deadlines are waivable on a university project remains uncertain. This analysis is complex and requires all contractors to pay attention to the type of project they’re working on to determine the impacts of the CPPA.

THESE RULES DO NOT APPLY TO ARCHITECTS AND ENGINEERS

The broad language of the California Prompt Payment Act appears to implicate all people and companies involved in the construction industry.  In many ways, the coverage of this law is so broad that design professionals like architects, engineers and surveyors would fall under its gambit.  But California has separate legislation for these design professionals, and generally speaking, they do not need to comply with these payment deadlines.  For these design professionals, the law does not prevent setting late payment penalties in lieu of interest via contract.   Much as is the case with this law, rights and protections are not limited to owner – general contractor relationships, and these rights and protections also apply to subcontracted design professionals.

TIME FOR THE LAWYERS

One key distinction between California’s law and much of the rest of the country is the ability to recover attorney’s fees.  The general rule is that lawyer fees cannot be included in a mechanic’s lien or other claim, nor can any fees associated with the CPPA.  However, should a dispute need litigation in California courts, the rules clearly allow the prevailing party to recover their own attorney fees from the losing party, in addition to the actual damages proven.

This blog is for educational purposes only and not intended for legal advice.